The painter on your team knocked down the client's antique chandelier, the plumber shut off the wrong pipe and the neighbour downstairs was flooded, the courier knocked over a customer's machine in the warehouse. The damage was caused by the employee, yet the bill arrives at the company – and at that point two questions arise in the manager's mind at once. The first: who is legally liable for this, the company or the employee? The second, spoken or unspoken: if the company pays, can it get the money back from the employee, perhaps from their wages? As a broker, what I see is that the wrong answer to the second question – a unilateral wage deduction, a 'deductible declaration' the employee was made to sign – often causes more trouble than the damage itself: a labour dispute, a lost lawsuit, a soured relationship. This article follows the path of damage caused to a third party from the injured party, through the insurer, to the employee.
- It is the company, not the employee, that is liable to the injured party: under the Hungarian Civil Code (Ptk.), the employer answers for damage caused to a third party by an employee in connection with their employment, and the employee is jointly liable with it only for intentional damage.
- Liability insurance pays the covered loss in place of the company; Hungarian policy conditions typically treat employees as insureds too, so the insurer can claim money back from an employee only in the cases specified in the conditions – typically intentional or grossly negligent conduct.
- What remains with the company (the deductible, the part outside the cover) can be claimed from the employee within the limits of the Labour Code (Mt.): for negligent damage, at most four months' absence pay (távolléti díj), or eight months' under a collective agreement; for intentional or grossly negligent damage, the full loss – and it can be deducted from wages only with the employee's consent or on the basis of an enforceable decision.
The company is liable to the injured party, not the employee
Under the liability rule of the Hungarian Civil Code (Ptk. Section 6:540), if an employee causes damage to a third party in connection with their employment relationship, the employer is liable towards the injured party. The injured party can therefore claim the price of the chandelier not from the painter but from the painter's company – even if the company itself did nothing wrong. Under the Ptk., the employee is liable towards the injured party jointly and severally with the employer only if they caused the damage intentionally. This arrangement protects the injured party: they do not have to find out which member of staff made the mistake, and compensation does not depend on the employee's ability to pay. From the company's side, the same thing means that the business answers with all of its assets for its employees' work, which is why the liability insurance needs to extend to the employees' activities as well. Who is the policyholder and who is insured under liability insurance, and how employees come into the picture, is described in the article on the policyholder and the scope of insureds.
The insurance pays in place of the company – and cannot claim just anything back from the employee
The essence of liability insurance is that the insurer relieves the insured of paying compensation for damage for which the insured is liable under the law. Damage caused by an employee is typically like this: the company is liable, and the insurer pays the injured party for the covered loss in place of the company – within the policy conditions, the limit and the deductible. Hungarian business liability policy conditions typically treat the insured company's employees as insureds too, in respect of damage they cause in the course of their job; this matters because the insurer can claim back the amount it has paid out from whoever the conditions name for this. Against an employee, this is typically narrowed to intentional – under some conditions also grossly negligent – damage, but it varies from insurer to insurer, and it is worth reading the 'recovery' (visszakövetelés) or 'recourse' (regressz) clause in your own conditions. The article on intent and gross negligence explores this boundary. What remains with the company in any case is the deductible and every part the cover does not extend to: the amount above the limit, an excluded type of loss, an undeclared activity. In practice, then, the question 'can it be recovered from the employee' is not about the whole loss, but about this remainder.
What can the company claim from the employee? The limits of the Labour Code (Mt.)
The relationship between employer and employee is governed not by the Ptk. but by the Labour Code (Mt.), and its rules on employees' liability for damages (Mt. Section 179) are deliberately narrower than liability under civil law. An employee must compensate for damage caused by breaching their obligations arising from the employment relationship if they did not act as would generally be expected in the given situation – and the employer must prove this, as well as the damage and the causal link. For negligent damage, compensation may not exceed four months' absence pay (távolléti díj) of the employee; a collective agreement may raise this to at most eight months' absence pay. For intentional or grossly negligent damage, the full loss must be compensated. The employee does not have to compensate for damage that was not foreseeable at the time it was caused, that was caused by the employer's culpable conduct, or that resulted from the employer's failure to meet its duty to mitigate the loss; the court may also reduce the compensation on the basis of circumstances deserving special consideration. The employment contract may not deviate from these rules to the employee's detriment, so a general clause in the employment contract saying 'the employee bears the deductible' is worth no more than what the Mt. allows anyway. To stay with the examples: the dropped chandelier is simple negligence, and the deductible remaining with the company can be claimed up to the ceiling of four months' absence pay; a knowingly skipped pressure test may already be gross negligence, where the ceiling offers no protection – but the employer must prove this, and the classification is ultimately for the court. How large a deductible is worth choosing, and why passing it on to employees is not the solution, is discussed in the article on the logic of the deductible.
How it can be claimed – and how not: the wage-deduction trap
The most common mistake is for the company simply to deduct the damage from the next pay packet. Under the Mt.'s rules on wage deductions, deductions from wages may be made on the basis of a statutory provision or – without touching the protected, deduction-free part of the wage – an enforceable decision; the employer may deduct its own claim on the basis of the employee's consent, likewise only without touching the deduction-free part. A damages claim therefore cannot be deducted unilaterally, even if the employee 'admitted' it verbally. The proper route: a written agreement with the employee on the amount of compensation and the payment details, and, if they consent to it, on deduction from wages; in the absence of an agreement, under the Mt. the employer can enforce a claim not exceeding three times the compulsory minimum wage by a written demand for payment – which the employee can challenge in court within thirty days of being notified – and above that amount the route is a labour lawsuit. Labour-law claims become time-barred after three years. One thing is worth weighing beyond the form: claiming damages from an employee is legally possible, but because of the four-month ceiling and the burden of proof, for small losses the procedure often costs more than it brings in – which is why many companies deliberately treat the deductible as a cost of operating and reserve holding employees liable for serious cases.
What is the insurer's job, and what is the company's?
The company reports the injured party's claim on the insurer's claims line, together with the employee's written description of the incident, photos and the injured party's claim; the insurer examines liability and cover, and pays the covered loss to the injured party. The claim against the employee is separate from this: the company pursues it for its own remaining loss, under the rules of the Mt. – the insurer takes no part in this, and the policy conditions do not give any separate right for it either. Two things the company has to keep in order itself: it should not acknowledge the loss or conclude a settlement with the injured party without the insurer's consent, because under the policy conditions this may weaken its claim against the insurer; and it should take any steps against the employee in writing, within the framework of the Mt. How the injured party's claim reaches the insurer is traced step by step in the article on the reporting procedure.
What should you do now?
Check in your policy conditions whether the scope of insureds extends to employees and to people working for you under other work-related legal relationships – agency workers, contractors or student workers are often a separate question – and what the conditions say about recovery. If damage has occurred: report it on the claims line, without acknowledging the loss; limit the claim against the employee to the loss remaining with the company, bearing in mind the Mt.'s ceiling and burden of proof, in writing, by agreement or a demand for payment rather than a wage deduction. If you let me know, I review the scope of insureds and the recovery clause of your conditions against your own workforce, and I help where I can; for the labour-law steps – agreement, demand for payment – it is advisable to involve an employment lawyer, and as a broker I am no substitute for that.
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Sources
- Hungarian Civil Code (Ptk., Act V of 2013) Section 6:540 – liability for damage caused by an employee; liability insurance contract (Section 6:470 et seq.)
- Labour Code (Mt., Act I of 2012) – the employee's liability for damages (Sections 179, 190–191), deductions from wages (Section 161), demand for payment and limitation (Sections 285–286)
- Adózóna – When an employee causes damage: how to claim compensation (a practical overview of the Mt.'s rules on damages)
